A Lifeboat for Student Debtors

A Lifeboat for Student Debtors

In one especially outrageous case, a nurse in Tennessee defaulted on her loans after epileptic seizures made it impossible for her to work. She eventually got her disorder under control but was unable to return to work because the State Nursing Board had suspended her license. The board wanted more than $1,500 to return the license — a small fortune for a person of no means.

State officials argue that these licensing policies are in the best interest of taxpayers, who guarantee many student loans, and that borrowers will somehow find the money if pressed. The truth is that people who lose professional licenses or driver’s licenses are often propelled deeper into poverty with no hope of ever paying off their loans.

In a sensible world, the companies that are paid by the federal government to manage loan accounts and collect payments would enroll struggling borrowers in income-driven payment plans that allow them to pay only what they can afford — without penalty, before they go into default — until their financial condition improves.

But as the Consumer Financial Protection Bureau reported two years ago, the loan servicing companies have little interest in helping their customers refinance at lower rates and have sometimes withheld valuable information about affordable payment options. The Obama administration tried to address this problem by steering federal contracts away from companies that provided shoddy loan servicing. The Trump administration has since abandoned that policy.

Nevertheless, lawmakers on both sides of the aisle are waking up. Under bills pending in both the House and the Senate, borrowers who miss four months of federal student loan payments would be automatically enrolled in the income-driven plan, which offers manageable monthly payments linked to the borrower’s earnings and family size.

Meantime, the states that are making life so hard for borrowers by robbing them of the credentials they need to survive should rethink policies that drive their neediest citizens ever deeper into debt and despair.

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